[NiloCK]

> Aren't students already allowed to fail?

It's technically allowed on an individual basis, but the economics don't work for any institution to attempt to raise its bar.

If institutions X and Y grant credential Z, and X starts failing a third of its students, who would apply to go there?

[pc86]

For the most part degrees from roughly comparable schools in the same subject are fungible. However, graduating cheaters who should have flunked out of school their freshman year is a one-way ticket to having a reputation that your degree is worthless. You're now comparable to a lower tier of schools and suddenly Y's degree is worth a lot more than yours. The best way (not to only way) to combat this is to actively cull the bottom of your classes. Most schools already do this by kicking out people with low enough GPAs, academic probation, etc. My undergrad would expel you if you had a GPA below 1.8 after your first semester, and you were on academic probation if your GPA was > 1.8 and <=2.5.

This assumes, of course, an institution is actively trying to raise the academic bar of its student population. Most schools are emphatically not trying to do this and are focused more on just increasing enrollment, getting more tax dollars, and hiring more administrators.